Investors seem to have soured on Tesla (TSLA 2.07%), particularly in recent months. The leading electric vehicle stock has suffered from lightened demand for EVs. Also, a perception of changing priorities in some parts of its business may have given investors pause. Consequently, its stock sells at a 58% discount to its high set in 2021.
Nonetheless, such lower prices often amount to buying opportunities, particularly when a company can overcome its challenges. That will likely be the case with Tesla, and an emerging business could greatly enhance that recovery.
NASDAQ: TSLA
Key Data Points
Tesla's struggles are probably temporary
Indeed, the slump in EV sales has hurt Tesla, and many investors have worried about competition from Chinese EV maker BYD. Competition and price cuts have compressed gross margins, which has soured some investors on Tesla stock.
Still, Tesla is not ignoring these issues. To stoke demand, Tesla has offered 0.99% financing for Tesla Model Y buyers, which will likely help it move more inventory. Moreover, even though Tesla has backtracked on its goal of producing 20 million cars annually by 2030, it seems intent on increasing production. The company says it wants to "displace fossil fuels by selling as many Tesla products as possible."
To that end, Tesla reiterated in late April that the company had not abandoned plans for a lower-cost EV. Admittedly, the company has not revealed whether that will be the Model 2 or a lower-cost version of a current model. However, having a lower-cost model available dramatically increases the odds that Tesla can continue to grow its sales volume, which should reassure nervous investors as that plan becomes more clear.
How the robotaxi could change Tesla
Still, for all the focus on cars, the product that could become Tesla's next major revenue driver (pardon the pun) is the robotaxi. While a fully autonomous platform is not yet a reality, the latest version of Tesla's full self-driving platform has made tremendous strides.
Additionally, investors are probably waiting anxiously for Aug. 8, the day CEO Elon Musk has set for the release of the robotaxi.
This includes Cathie Wood and her team at Ark Invest, who forecast a $2,000 per share price target for the stock by 2027. Such an increase would amount to an 11-fold rise in the stock price over three years.
Investors have reason to take this prediction seriously. In 2018, Wood proposed a split-adjusted $267 per share target when the stock sold for slightly more than a split-adjusted $20 per share. Tesla would go on to surpass that projected price in the 2021 bull market.
Furthermore, to put the share price in perspective, the current market cap of around $555 billion would rise to approximately $6.4 trillion, approximately twice the current size of market cap leader Microsoft.
Investing in Tesla
Tesla has set lofty goals amid more recent struggles, but history says Musk and his team will probably achieve their goals, which could bring about a stock recovery and take Tesla to record highs.
Yes, Tesla has struggled in recent years as it has sought to transform itself, and rising competition, lower gross margins, and the lack of clarity on the future of a lower-cost vehicle seemed to disappoint shareholders.
Nonetheless, rising production and a viable robotaxi platform could transform the company. If Tesla can meet or even come close to those goals, it can not only return to its all-time high, but also far surpass it.
